Tiger in Australia: Domestic air fares down in February

Australian domestic air fare categories were down in February 2008 – traditionally a slow month for airlines.

An index of Best Discount fares, produced by the Australian Bureau of Transport and Regional Economics, dropped from 80.2 in January to 78.4 this month. The February 2008 level was some 8.5 percentage points below the same month last year.

The big reduction in discounted fares is possibly due to the effects of Tiger Airways' entry in Australia and a build-up of capacity by incumbent airlines.

Meanwhile, an index of Restricted Economy fares, showed prices fell from 98.3 in January 2007 (July 2003 = 100) to 97.8 in February, however the result was 2.0 points above February 2007.

Business fares fell 0.4 points year-on-year in February, while the Full Economy fare index dipped significantly, although this was due to the first time inclusion of Virgin Blue's Corporate Plus Fare from February 2008. (The index previously included Qantas' Fully Flexible Fares only).

Several brokers have recently downgraded their outlooks for the Australian airline sector, with JP Morgan calculating Qantas’ domestic yield fell 2.9% in November 2007 – the first contraction since March 2005. According to JP Morgan, domestic yields peaked in July 2007.

The Centre predicts Australian carriers will increase domestic capacity by around 25% by mid 2009, compared to mid 2007. This will put pressure on international operations to perform, a challenge made more difficult by rising global economic uncertainty.

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